360 More Pgs of PPACA Regs Released Fri. Before Thanksgiving | Improved Insurer 'Bailouts' & Easier Access to Indiv. Mandate Waivers on Armstrong & Getty

The Friday before Thanksgiving might actually be the quintessential "news dump Friday." Last Friday did not disappoint.  As much of the country tuned out and moved toward their holiday week, a number of huge stories slithered out under as much darkness as the 24-7 news cycle will allow.  Lois Learner's lost, deleted, destroyed IRS emails miraculously reappeared and the Benghazi Report surfaced.  But the quietest of them all may have been another flurry of regulatory actions on Obamacare.  We saw: 

• Four new regulatory releases, including both final and proposed rules; 
• Totaling 360 pages; and 
• Disseminated by three federal agencies - IRS, HHS and CMS.  

Not much of what was done will impact employers directly and there are certainly no immediate action items to address.  But some of the moves clearly illustrate the Administration's continued effort to sweeten the pot to insurers and appease its constituency. Insurers continue to grow squeamish.  They are looking at meager enrollment numbers, unhealthier than anticipated enrollees and a growing political clamor to make changes to PPACA that would harm their bottom line - namely, a repeal of the employer and individual mandates as well as the Three Rs (Bailouts) Program. 

Here is a brief summary of what these releases did along with their wonderfully Orwellian headings, like "Premium Stabilization."  That sounds like an innocuous enough thing doesn't it?  Until you see that it means some bureaucrat could change your plan by increasing your deducible and copays in order to moderate premium increases and keep you from noticing that Obamacare is moving toward unaffordability at warp speed.  Sounds to me like Jonathan Gruber is still consulting on PPACA.  

• To help in “Premium Stabilization” one set of proposed regulations will make it so that in an Exchange you are automatically defaulted to a lower premium plan with a higher deductible in order to keep from seeing how expensive plans have become.   

• To help improve “Meaningful Access” another set of rule-makings will require that Exchanges, navigators and online brokers associated with the Exchanges provide “telephonic interpreter services in at least 150 languages.” 

• Lower Cost-Sharing Limits for Certain Individuals: Lower cost-sharing limits (deductibles, copays, out-of-pocket maximums, etc.) are proposed for certain individuals with lower incomes. This is going to get extraordinarily complicated because these "cost sharing limits" aren't the premium support subsidies that are what we normally discuss.  Premium support is for persons between 100% and 400% of the federal poverty level.  These cost-sharing limits are an additional handout for persons between 100% and 250% of the federal poverty level. 

• For individuals with household incomes between 100% and 200% of the federal poverty level, the proposed maximum is $4,250 for self-only coverage and $4,500 for family coverage. 

• For individuals with incomes between 200% and 250% of the federal poverty level, the proposed maximums are $5,450 for self-only coverage and $10,900 for family coverage.  

• "Hardship Considerations": To make it as easy as possible for the Administration’s constituency to get an individual exemption from Obamacare, hardships identified by HHS may be claimed on a Federal income tax return without obtaining a hardship exemption certification from the Exchange. Individuals seeking a hardship exemption that is not on this list can apply for an exemption through the Exchange.  Hence, they've removed another barrier to obtaining an individual exemption. Six hardships get this special treatment.  

• These exemptions mainly relate to the cost of coverage exceeding certain thresholds for family members.  Or, 

• If you are eligible for an Indian Health Plan. Or, 

• If you live in a state that did not expand Medicaid. 

• An update on “Affordability Percentages” for 2016.  I.e., a person asked to pay more than this percent of his annual, household income for insurance is off the hook for Obamacare because it will be deemed too expensive.  

• Improved Bailout Terms for “Premium Stabilization.” 

• For 2015 Insurers will get federal dollars for individual claimants who exceed $45,000 in claims as opposed to the originally planned $70,000. 

• And it is proposed that in 2016 (to help soften the cost blow for what they are doing this year) they will raise that attachment point to $90,000. Does anyone else see this reduction getting punted down the road much like the Doc Fix?

• HHS also says, “We reiterate our previous guidance that in the unlikely event of a shortfall in the 2016 benefit year, HHS will use other sources of funding” (Pg. 15 of the 324 PDF found here.) 

• Translation: when the Three Rs program runs short on the planned taxes and fees already built in on various premiums and policies, HHS will do whatever is necessary to make sure its insurer partners get paid with federal dollars. 

I visited with Jack and Joe in the 9:00 AM hour today to eat unholy amounts of pie and other seasonal baked goods while discussing these latest PPACA regulatory releases.  

Below is the audio.  The Obamacare talk concludes by the 22 minute mark: 

  

Flowchart of Employer Responsibility in PPACA, Updated for 2015 and 2016

This is from the Henry J. Kaiser Family Foundation.  Click on image for a larger link:

 

How to Transition an Employee to Your Standard Ongoing 12-Month Measurement Period After Their Initial Measurement Period in PPACA

A new employee who an employer reasonably expects to be employed an average of less than 30 hours per week during the initial measurement period, based on the facts and circumstances at the employee’s start date, still must be tested to determine if they trigger full-time status of 30 hours per week, on average, under Health Reform (PPACA).

Similar to the method employed for ongoing employees, the look-back measurement method for new variable hour, seasonal and part-time employees utilizes a stability period for when coverage may need to be provided, depending on the employee’s hours of service during the initial measurement period.  An administrative period may also be added to make eligibility determinations, notify and enroll employees.

An employer has discretion in determining when the initial measurement, stability and administrative periods will start and end, subject to various IRS parameters. However, the stability period for these employees must be the same length as the stability period for ongoing employees.

Once a new variable hour, seasonal employee or part-time employee has been employed for an entire standard measurement period, the employee must be tested for full-time status, beginning with that standard measurement period, at the same time and under the same conditions as other ongoing employees.

This transition from initial to ongoing employee status under PPACA was summarized well by the law firm of Trucker & Huss.  If you have the time, the entire publication is worth reading. It is excerpted below:

Transition from Newly-Hired Employee to Ongoing Employee

Notice 2012-58 also provides guidance regarding the rules to be followed when transitioning an employee from his or her "initial measurement period" to the plan’s ’standard measurement period." The measurement rules for a newly-hired employee who becomes an ongoing employee are similar to the measurement rules used for qualified retirement plans. There will be an overlap in the year that contains the employee’s first anniversary from his or her date of hire. When a new employee has been employed for an initial measurement period, the employer must retest the employee’s full-time status again during the standard measurement period used for ongoing employees. If the employer determines that an employee has full-time employee status during an initial measurement period or standard measurement period, the employee must be treated as a full-time employee for the entire associated stability period. This rule is illustrated in the example below.

Example: Employer A has a 12 month standard measurement period running from October 15th and ending the following October 14th for coverage to become effective January 1st of the subsequent year. Employer A’s initial measurement period is the 12 month period starting on the date of a variable hour employee’s date of hire. Nate is a variable hour employee who is hired on May 10, 2014. If Nate averages at least thirty hours per week during the 12 month initial measurement period (i.e., May 10, 2014, through May 9, 2015), Employer A must offer Nate coverage starting July 1, 2015. If Nate does not average thirty hours per week during his 12 month initial measurement period (i.e., May 10, 2014, through May 9, 2015), Employer A does not have to offer him coverage. However, Employer A must re-test Nate’s status during the next "standard measurement period" (i.e., October 15, 2014, through October 14, 2015). If Nate averages 30 hours per week during this standard measurement period, he must be offered coverage no later than January 1, 2016.

And this is from Page 10 in IRS Notice 2012-58:

An employee determined to be a full-time employee during an initial measurement period or standard measurement period must be treated as a full-time employee for the entire associated stability period. This is the case even if the employee is determined to be a full-time employee during the initial measurement period but determined not to be a full-time employee during the overlapping or immediately following standard measurement period. In that case, the employer may treat the employee as not a full-time employee only after the end of the stability period associated with the initial measurement period. Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees.

In contrast, if the employee is determined not to be a full-time employee during the initial measurement period, but is determined to be a full-time employee during the overlapping or immediately following standard measurement period, the employee must be treated as a full-time employee for the entire stability period that corresponds to that standard measurement period (even if that stability period begins before the end of the stability period associated with the initial measurement period). Thereafter, the employee’s full-time status would be determined in the same manner as that of the employer’s other ongoing employees. 

Below is a simple visual sample of what your standard measurement periods might look like if you had a 1/1 renewal and selected 12-months.  The vast majority of employers are electing to use 12-months to gain the longest period over which to average hours and to avoid having to repeat the ongoing calculation more than once a year.  (Click on image for a larger version):

Stories Causing Atlas to Shrug, November 20th Edition | Hospitals Killing Folks, Obamacare Really Just Means Medicaid and Unfunded Pension Madness

California Hospitals Make Hundreds of Errors Every Year, Public is Unaware.  California hospitals reported 6,282 adverse events to the state in the last four fiscal years. They range from “death associated with an error”, to “stage 3 or 4 decubitus ulcer,” or bedsores. However, the state has no way of ensuring that every hospital is reporting every error that occurs.

Of the 8.5 million who enrolled in the Obamacare Exchanges during 2014, over 6 million enrolled in Medicaid (which is almost entirely taxpayer funded) as opposed to the Exchanges (which are about 75% taxpayer funded).

New CBO Study: 60% of Americans Receive More Government Benefit Than They Pay in Taxes

California has a $754 billion unfunded liability -- the highest among the 50 states. But overall, Illinois is probably worse off than Californitopia.

Here is what PPACA will bring to us on a national scale: Despite the healthy supply of physicians in Massachusetts, some patients must still wait as long as four months for a first-time visit with a primary care physician.

Under new Obamacare rules a company may not reimburse workers for their insurance premiums with after-tax money but an employer can just give an employee a raise and not specifically reimburse premiums.  Can the owner tailor the amount of additional compensation for each person to the cost of health insurance without crossing the line into reimbursement?  Probably so, according to the New York Times, but the raise must be unconditional.

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According to the “Small Business Tax Index 2014,” the 15 best state tax systems are: 

• 1) Nevada, 2) South Dakota, 3) Texas, 4) Wyoming, 5) Washington, 6) Florida, 7) Alabama, 8) Ohio, 9) Colorado, 10) Alaska, 11) Indiana, 12) Michigan, 13) Arizona, 14) North Dakota, and 15) Utah.

The 15 most inhospitable state tax systems for small business are:

• 36) Delaware, 37) Wisconsin, 38) Idaho, 39) Rhode Island, 40) Nebraska, 41) Connecticut, 42) Oregon, 43) Vermont, 44) Maine, 45) New York, 46) Iowa, 47) Hawaii, 48) New Jersey, 49) Minnesota, and 50) California.  

Insurers Gleefully Partner with Government for Mandated Taxpayer Premium and Claim Support Created by PPACA

Health Reform Cements Government-Insurer Complex

It should surprise nobody that alliances change so dramatically when the government starts handing out money.  As you read the below NY Times article, remember that many insurers invested a significant amount of money "buying in" to PPACA very early in the game.  They were promised heavily subsidized premiums as well as additional government checks to cover excessive claims from sick enrollees in the reinsurance and risk adjustment programs (Three Rs Program).

There is not a carrier on the planet that would voluntarily pass up those federally mandated cash "bailouts" before 2017 when that program is set to expire.  I've spoken to carriers who have told me that is the only reason they are "buying" business in the Exchanges and plan to completely reverse course once the federal spigot slows.

After 2017, some insurers will continue to support the law as they will have grown addicted the the government premium checks.  However, I suspect most of them will be ready to abandon the program due to the loss of the Three Rs, horrific levels of adverse selection, and the ever-mounting pile of regulatory burdens.

This is from Robert Pear writing at the New York Times:

... [S]ince the Affordable Care Act was enacted in 2010, the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment. 

The insurers in turn have provided crucial support to Mr. Obama in court battles over the health care law, including a case now before the Supreme Court challenging the federal subsidies paid to insurance companies on behalf of low- and moderate-income consumers. Last fall, a unit of one of the nation’s largest insurers, UnitedHealth Group, helped the administration repair the HealthCare.gov website after it crashed in the opening days of enrollment. 

“Insurers and the government have developed a symbiotic relationship, nurtured by tens of billions of dollars that flow from the federal Treasury to insurers each year,” said Michael F. Cannon, director of health policy studies at the libertarian Cato Institute. 

So much so, in fact, that insurers may soon be on a collision course with the Republican majority in the new Congress. Insurers, often aligned with Republicans in the past, have built their business plans around the law and will strenuously resist Republican efforts to dismantle it. Since Mr. Obama signed the law, share prices for four of the major insurance companies — Aetna, Cigna, Humana and UnitedHealth — have more than doubled, while the Standard & Poor’s 500-stock index has increased about 70 percent. 

“These companies all look at government programs as growth markets,” said Michael J. Tuffin, a former executive vice president of America’s Health Insurance Plans, the main lobby for the industry. “There will be nearly $2 trillion of subsidized coverage through insurance exchanges and Medicaid over the next 10 years. These are pragmatic companies. They will follow the customer.”
The relationship is expected only to deepen as the two sides grow more intertwined. ... 

“We are in this together,” Kevin J. Counihan, the chief executive of the federal insurance marketplace, told insurers at a recent conference in Washington. “You have been our partners,” and for that, he said, “we are very grateful.” 

Despite Mr. Obama’s denunciations of insurers in 2009, it became inevitable that they would have a central role in expanding coverage under the Affordable Care Act later that year when Congress ruled out a government-run health plan — the “public option.” But friction between insurers and the Obama administration continued into 2013 as the industry bristled at stringent rules imposed on carriers in the name of consumer protection. 

... [I]nsurers say government business is growing much faster than the market for commercial employer-sponsored coverage. The Congressional Budget Office estimates that 170 million people will have coverage through Medicare, Medicaid and the insurance exchanges by 2023, an increase of about 50 percent from 2013. By contrast, the number of people with employer-based coverage is expected to rise just 2 percent, to 159 million. ...

WellPoint is a case study in how companies have adapted to the law. 

In 2010, as Democrats attacked the insurance industry for what they said were its high prices and discriminatory practices, no company was more of a target than WellPoint, which had sought rate increases of up to 39 percent in California. But WellPoint, which operates Blue Cross and Blue Shield plans in a number of states, is now prospering. 

WellPoint announced recently that it had gained 751,000 subscribers through the health insurance exchanges and 699,000 new members through Medicaid. Since the end of 2013, WellPoint’s Medicaid enrollment has increased by 16 percent, to a total of five million. 

“Our government business is growing along multiple fronts” and accounted for about 45 percent of the company’s consolidated operating revenues, said Joseph R. Swedish, the chief executive of WellPoint. ...

And this is from Tim Carney at the Washington Examiner:  

Remember how much President Obama and the Democrats portrayed Obamacare as a broadside to the special interests, especially the health insurers?

Nancy Pelosi said of the insurance companies, "They are the villains in this." Obama pitched the bill as an improvement on a system that "works well for the insurance industry, but it doesn't always work well for you." ...

Well, clearly the story has changed, Tim writes as he quotes from the above NY Times article.

This dovetails with what I've been seeing for years. It was the health industry that has pushed states to expand Medicaid and build Obamacare exchanges — a loss for taxpayers. And here's an example that shows how the gains made by Obama and the insurers is a loss for patients: Obamacare's regulations create a moat around the existing insurers and protect them from competition.

Finally, below is a montage of what President Obama said when he was trying to pass PPACA versus what he says now about the law, his relationship with economist, Jonathan Gruber and a number of other topics.  This is from Dan Joseph at MRCTV:

*** Update: on Wednesday morning, November 19, Armstrong and Getty covered this story and revisited the prior post on this blog about PPACA's record low approval among Americans.  Here is a portion of that audio: 

  

POLL: Obamacare Approval Sinks to an All Time Low with Audio from Armstrong and Getty

Today on the Armstrong and Getty Radio Program, Jack and Joe discussed a poll in which approximately three-fourths of Obamacare enrollees are satisfied with their plans.  During the segment Joe and I swapped texts and I pointed out that as many as three-fourth's of Exchange enrollees have yet to even show up at the doctor's office to use their plans. Hence, most folks on Obamacare have not yet felt the impact of high deductibles, high co-pays and small doctor networks.  Nevertheless, most enrollees' premiums are heavily subsidized by the taxpayer. Thus, from an enrollee's standpoint there is nothing to complain about - yet.

Here is a portion of their audio from today in the 9 AM hour:

Perhaps a better indicator of the success of PPACA is that, according to a Gallup poll released today, only 37% of Americans approve of it.  This is from Alison Elkin at BenefitsPro:

... Americans have lost whatever loving feeling they once had for [Obamacare], according to a new Gallup poll out Monday. 

According to the poll, 37 percent of Americans approve of the Pateint Protection and Affordable Care Act, which is one percentage point less than the previous low. That was in January of 2014, following a rollout plagued with issues. Fifty-five percent of Americans now say they disapprove of the law. 

The poll also found a dip in approval among non-whites, who are still the law's strongest supporters. At 56 percent, the non-white approval rate is below 60 percent for the first time. 

The poll comes just in time for the new enrollment period, which began on Saturday and goes through February. It reached 828 people by phone and had a margin of error of four points.  

   

CalPERS Pays Out $65 Million in Medical Benefits and Another $2 Million Per Month in Premiums for 'Ineligible' Individuals

State's Been Leaking Approximately $90 Million a Year Via Inadequate Defenses Against Insurance Fraud

I love how these stories get spun as savings to the taxpayer.  Yes, it is great news that we are no longer paying for state workers to commit insurance fraud.  But if the state had actually been doing its job in the first place, we could have prevented the squandering of millions of taxpayer dollars.

Dependent audits are always a good idea on large plans.  No matter how diligent a plan sponsor is, some dependent fraud occurs.  For example, employees can divorce, fail to report the event to their employer, and illegally choose to keep that ex-spouse on the employer's plan.  This form of insurance fraud is nearly impossible for an employer to catch without an audit. 

However, more flagrant and preventable forms of dependent-enrollment abuse also occur when employees enroll friends and family members who are not legal dependents (like girl/boyfriends, uncles, aunts, parents, nieces and nephews, etc).  It is not uncommon for employees to bilk an employer out of 5% to 15% of a plan's total cost with phony dependents.

And now we learn that the California taxpayer has been paying $2 million a month in premiums and a total of $65 million in claims for fraudsters to cover unqualified individuals in CalPERS.  This is from Jon Ortiz at the Sacramento Bee:  

CalPERS has dropped health coverage for nearly 9,000 people over the last year after a sweeping audit revealed they weren’t eligible for benefits received through state-worker and state-retiree health plans. 

When added to roughly 5,300 ineligible dependents voluntarily removed from state insurance rolls last year, agencies are saving more than $2 million per month in premium payments alone, according to a report prepared for CalPERS Board of Administration. Scrubbing the rolls has saved the state another $64.7 million in avoided claims for doctor visits. hospitalizations, medication and other health services, the report states. 

CalPERS launched an audit of dependents on state agencies’ medical-insurance rolls last year. At the time, the fund estimated about 29,000 ex-spouses, live-in partners and other so-called “ineligible dependents” were receiving coverage who shouldn’t have been. It figures to finish the dependent-eligibility verifications of local agencies and schools in the first quarter of 2015. 

CalPERS provides medical insurance for a 1.4 million government employees, retirees and their dependents. 

Note that this audit only yielded a 1% reduction in plan participants (14,300 out of 1.4 million).  When my co-workers assisted one of our clients, El Camino Hospital, on a similar audit they generated a 7.6% reduction in plan participants.  Average audits yield 4% to 8% reductions.

If California auditors had simply performed at the very low end of average for this audit, we should have seen four times the amount, or an annual savings of $360 million.  Alas, I suppose it is fanciful for me to assume our state can operate at "the very low end of average."

On Tuesday morning November 18th, the Armstrong and Getty Show covered this as well. Here is a portion of that audio.

  

   

Healthcare Cost Trends Graphic, 1999 to 2014

 
Source: Journal of the American Medical Association.
 

Stories Causing Atlas to Shrug, November 12th Edition

Obamacare:

Less than half of businesses are reasonably sure they will be able to comply with Obamacare's employer mandate.

A new survey from Bankrate finds that 51% of those who used HealthCare.gov or Obamacare’s state exchanges during the law’s initial enrollment period don’t plan on using them again during the new enrollment season, citing technology and cost concerns.

Corporatism:

"Profits" at the giant Kaiser Permanente "nonprofit" health-care system jumped 41% through 2014's first three quarters to $3.1 billion, and soared 57% in Q3 to nearly $1 billion, in large part because of strong enrollment growth linked to taxpayer subsides for Obamacare premiums.

Transparency, Translucency: 

3rd Gruber Video Surfaces: Sen. John Kerry, D-Massachusetts, pushed forward a way to tax citizens health insurance plans by purportedly "taxing" the insurance companies though Gruber suggests everyone supporting the law knew the companies would just pass on the additional cost to taxpayers.

Companies subject to the Obamacare Cadillac Tax (see previous story) will pay an average of $2.1 million per year from 2018 to 2024-equal to $2,700 per employee. And if companies adjust workers' wages to offset reductions in health benefits due to the tax, employees will face an average of $1,050 in higher payroll and income taxes per year. We estimate that at least 1 in 3 California businesses will have to pay this tax.

"Nancy Pelosi knows exactly who didn't write the bill she never read." (David Burge.) Pelosi cited ObamaCare architect in push for law – now claims she hasn’t heard of him.

Californitopia 

California DMV Expands Office Hours To Accommodate Licenses For Undocumented Immigrants.
 

PPACA's Architect Explains Why Obamacare Drafters Needed to Deceive the Public to Pass It. A Visit with Armstrong and Getty, 11/10/14

• On one hand, the Obama Administration likes to point out that last week's election is somehow diminished because two-thirds of the electorate chose not to vote.  

• Nevertheless, recent audio illuminates that in order for them to succeed in major initiatives, it would be a lot better if as few people as possible knew or understood what was being passed. 

I joined Jack and Joe for a brief visit this morning to explain Medicare's "doc fix" and its relation to the newly surfaced audio from Jonathan Gruber.  Gruber, an MIT Economist was one of the key persons who drafted PPACA.  “Lack of transparency” helped the Obama administration and congressional Democrats pass the Affordable Care Act, Gruber explained.  “Lack of transparency is a huge political advantage,” said Gruber.  “And basically, call it the stupidity of the American voter or whatever, but basically that was really, really critical for the thing to pass.”

That audio is reportedly from last year but just surfaced over the weekend.  Last week, I'd given Joe a thumbnail sketch on the "doc fix" in Medicare and how that single element was obfuscated and exploited during the passage of Obamacare.  In light of this recent, audio, Jack and Joe wanted me to come on today for brief summary on how the two topics intertwine.

17 times in 11 years, Congress and the President have delayed mandated Medicare reimbursement cuts as part of the so called ‘doc fix’.  Those cuts have been required by law since 1997 and neither party has had the gumption nor the wherewithal to either implement them, or more prudently, enact an honest solution.  However, in passing PPACA, the CBO scored the law as if the Medicare cuts would actually occur.  Not one congressman, senator or member of the executive branch truly believed such a cut would really happen.  But that didn't matter, as Gruber's above audio summarizes so nicely.  Being genuine would make it awfully hard to legislate for the "stupid" voters.

Here is my audio from the 8:00 AM hour of today's Armstrong and Getty Show (my discussion begins at 12:54.  The longer discussion before I join begins at 7:56):

• For more on my reference to healthcare's slowdown beginning long before Obamacare, see "It's The Cost-Sharing, Stupid: Health Care Spending Is Slowing Because Americans Control More Of Their Health Dollars," from Avik Roy in Forbes, June 16, 2013.  

Last year Professor Gruber also made it clear that under his reading of PPACA, only states who set up their own Exchanges would be able to issue subsidies to their residents.  This, once again, became relevant over the weekend as the Supreme Court has finally decided to weigh in on this issue.  The Obama Administration has been arguing in federal courts over the past year or more that it would be ludicrous for PPACA to fail to provide subsidies in the 34 states who chose not to set up an Exchange and allow the federal government, instead, to administer that Exchange.  (Read more about that on this site, under the Oklahoma vs. Obamacare tab.)  It is going to be rather difficult for the Administration to ague to the Supreme Court that it is absurd to think Obamacare would not permit such subsidies in the federal Exchanges with one of their chosen drafters publicly saying things like this:  

  

Supreme Court Decides to Hear Case on the Legality of Subsidies in the 34 Federally Facilitated Exchanges

This was just posted by Lyle Denniston at SCOTUSblog:

The Supreme Court, moving back into the abiding controversy over the new health care law, agreed early Friday afternoon to decide how far the federal government can extend its program of subsidies to buyers of health insurance. At issue is whether the program of tax credits applies only in the consumer marketplaces set up by 16 states, and not at federally-run sites in 34 states.

Rather than waiting until Monday to announce its action, which would be the usual mode at this time in the Court year, the Justices released the order granting review of King v. Burwell not long after finishing their closed-door private Conference. ...

Read full post.
 

We've Had 3 Obamacare Changes in 7 Days: And I Predict a Fourth Tomorrow

*** Updated - November 17th.  My prediction in point 4 below was off by a week.  I'm going to need to take in my crystal ball for a tune up.  On Sunday, November 16th, because they know everybody is checking their website on a Sunday, CMS postponed the filing deadline for the Transitional Reinsurance Fee by simply stating:

We have received requests for an extension of the deadline for contributing entities to submit their 2014 enrollment counts for the transitional reinsurance program contributions under 45 CFR 153.405(b).  The deadline has now been extended until 11:59 p.m. on December 5, 2014.  The January 15, 2015 and November 15, 2015 payment deadlines remain the same. 

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1) On Friday, Halloween Afternoon: the federal government suspended the Health Plan Identifier registration requirement for large employer plans as their instructions, links and website befuddled the sharpest business people who tried to simply register for something that should have been no more difficult than getting an employer ID number.

2)  On Election Day: The IRS reversed course on an Obamacare plan calculator that the federal government created in order to help employers. After a full year of employers relying on a flawed government creation ("flawed government creation" - I repeat myself) which permitted PPACA-compliant health plans with no hospital benefit, the IRS basically said, Oops, our bad. That wasn't right. We are going to change that in 2015 so please stop using the tools we give you.  

3) Today, the IRS, HHS and DOL issued a joint FAQ on PPACA and made up a new form of discrimination. Discrimination by giving the person a choice of extra money. Sounds horrible, doesn't it? PPACA does not contain an anti-dumping provision like Medicare does. This means that it is not expressly illegal for employers to entice high-claims individuals off of their employer-plan with an extra cash offer not made to other plan enrollees. Existing law makes it clear that one may not discriminate against a person based on medical conditions, but employers are generally allowed to discriminate in favor of sick participants with better offers of coverage. 

• This has horrified the Administration for policy reasons. Once we get all of the sickest enrollees onto PPACA Exchange plans these Exchanges are going to start to look a whole lot more like "high risk pools." And there will be no way to sustain that after the Three-Rs risk transfer (insurer bailout) provisions expire in 2017. So, with a pen and a phone the Administration sent three federal bureaucracies out today to claim that when you give a sick person an extra option of cash that nobody else has, you are in effect, discriminating in a harmful way against that sick person. 

• Example: Imagine offering a slice of pepperoni pizza to a class full of third graders for $1 per piece.  And then singling out one child who is generally hungrier than the rest and offering that child the same $1 per slice as everyone else, or, a gift of $500.  That one lucky child can choose to pay a dollar for a slice or to receive a gift of $500 with which he can buy as much pizza as he can eat.  Our federal government is arguing that this is unlawful and harmful discrimination against this child because if the child elects to pay his dollar for a slice of pizza, the poor little fellow would have to forgo the $500 offered to him instead of pizza.  Hence, the IRS, HHS and DOL conclude, this slice of pizza actually costs the child $501.  Only in the land of federal bureaucracy can you come to such a tortured conclusion. 

• I understand why the Administration wants to end this practice for macroeconomic reasons. But, by trying to fix this policy problem with a trumped up claim of discrimination-by-gift, they are trying to fix a broken arm with a hammer. 

4)  My Prediction for Tomorrow: The government will suspend the Transitional Reinsurance Fee Registration Requirement. Large self-funded plans have to report the average number of members enrolled on their plans during the past year to the government by Nov. 15th. Once again, the government's numerous and recently changed reporting and calculation requirements for "average enrollment" has caused mass confusion and wasted thousands of man-hours, nationwide. If it goes ahead as planned it will be another disjointed mess.

   

Legal Update: IRS - Employers May Not Pay for Individual Exchange Plans Nor Offer Extra Compensation For Sick Employees to Waive Employer Coverage

Federal agencies argue that a person is illegally discriminated against when that person is given an extra option nobody else has.  

Today, three federal agencies expounded upon a trio of hotly discussed PPACA compliance topics impacting employers who have attempted to solve some complex benefit-provision quandaries with creative Exchange-based solutions.

The first of these FAQs is not new news but a reiteration of a position Treasury has taken for at least a year now.  The second FAQ definitely provides us with new insight into the Departments' mindset about (or outright fear of) employers who offer extra compensation to employees with serious medical conditions and large claims to voluntarily leave the employer plan and move into a PPACA Exchange plan.  Legal scholars have pointed out repeatedly, that unlike Medicare, PPACA does not expressly contain an anti-dumping provision preventing an employer from enticing a sick person off of that employer's plan an onto an Exchange plan.  I think you will find the Departments' reasoning to be rather unique and somewhat obscure as it gets into "benign discrimination" and how an offer of extra cash could be construed as a penalty to a person who forgoes that cash and stays on an employer plan.

The final FAQ addresses another topic we've warned clients about over the last year or more.  About this final FAQ, I'll just say that when it comes to salespeople offering you Obamacare compliance (or any employee benefit) strategies that sound too good to be true - they probably are.  It happens enough that it no longer surprises me when I see brokers:

• peddling illegal MEWAs; 
• trying to convince clients they can skirt mandates by splitting companies into multiple commonly controlled parts; or 
• figuring out some slippery way to offer "employer" benefits while also milking the taxpayer for PPACA premium subsidies at the same time. 

All in all Treasury, DOL and HHS have made it clear: they do not want employers dumping employees into Exchange plans or subsidizing Exchange plans in any way.  And if they catch a whiff of it, they will bootstrap a legal argument together to come after you whether the express language exists in PPACA or not.  Below this line is today's IRS Release in full.

---

November 6, 2014

Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments). Like previously issued FAQs (available at http://www.dol.gov/ebsa/healthreform/ and http://www.cms.gov/cciio/resources/fact-sheets-and-faqs/index.html), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.

Compliance of Premium Reimbursement Arrangements

On September 13, 2013, DOL and the Treasury published guidance on the application of the market reforms and other provisions of the Affordable Care Act to health reimbursement arrangements (HRAs), certain health flexible spending arrangements (health FSAs) and certain other employer health care arrangements. (1)HHS issued contemporaneous guidance to reflect that HHS concurs in the application of the laws under its jurisdiction as set forth in the DOL and Treasury Department guidance. (2) Subsequently, on May 13, 2014, two FAQs were made available on the IRS website addressing employer health care arrangements. (3)

The Departments' prior guidance explains that employer health care arrangements, such as HRAs and employer payment plans, are group health plans that typically consist of a promise by an employer (4) to reimburse medical expenses up to a certain amount. The Departments' guidance clarifies that such arrangements are subject to the group market reform provisions of the Affordable Care Act, including the prohibition on annual limits under Public Health Service Act (PHS Act) section 2711 and the requirement to provide certain preventive services without cost sharing under PHS Act section 2713. (5) The Departments' guidance further clarifies that such employer health care arrangements will not violate these market reform provisions when integrated with a group health plan that complies with such provisions. However, an employer health care arrangement cannot be integrated with individual market policies to satisfy the market reforms. Consequently, such an arrangement may be subject to penalties, including excise taxes under section 4980D of the Internal Revenue Code (Code).

Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?

No. If the employer uses an arrangement that provides cash reimbursement for the purchase of an individual market policy, the employer's payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Therefore, the arrangement is group health plan coverage within the meaning of Code section 9832(a), Employee Retirement Income Security Act (ERISA) section 733(a) and PHS Act section 2791(a), and is subject to the market reform provisions of the Affordable Care Act applicable to group health plans. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code. Under the Departments' prior published guidance, the cash arrangement fails to comply with the market reforms because the cash payment cannot be integrated with an individual market policy. (6)

Q2: My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the market reforms?

No. PHS Act section 2705, (7) which was incorporated by reference into ERISA section 715 and Code section 9815, as well as the nondiscrimination provisions of ERISA section 702 and Code section 9802 originally added by the Health Insurance Portability and Accountability Act (HIPAA), prohibit discrimination based on one or more health factors. Offering, only to employees with a high claims risk, a choice between enrollment in the standard group health plan or cash, constitutes such discrimination. While the Departments' regulations implementing this provision (8) permit more favorable rules for eligibility or reduced premiums or contributions based on an adverse health factor (sometimes referred to as benign discrimination), in the Departments' view, cash-or-coverage arrangements offered only to employees with a high claims risk are not permissible benign discrimination. Accordingly, such arrangements will violate the nondiscrimination provisions, regardless of whether (1) the cash payment is treated by the employer as pre-tax or post-tax to the employee, (2) the employer is involved in the selection or purchase of any individual market product, or (3) the employee obtains any individual health insurance.

Such offers fail to qualify as benign discrimination for two reasons. First, if an employer offers a choice of additional cash or enrollment in the employer's plan to a high-claims-risk employee, the opt-out offer does not reduce the amount charged to the employee with the adverse health factor. Rather, the employer's offer of cash to a high-claims-risk employee who opts out of the employer's plan effectively increases the premium or contribution the employer's plan requires the employee to pay for coverage under the plan because, unlike other similarly situated individuals, the high-claims-risk employee must accept the cost of forgoing the cash in order to elect plan coverage. For example, if the employer's group health plan requires all employees to pay $2,500 toward the cost of employee-only coverage under the plan, but the employer offers a high-claims-risk employee $10,000 in additional compensation if the employee declines the coverage, for purposes of discrimination analysis, the effective required contribution by that high-claims-risk employee for plan coverage is $12,500 – that is, the $2,500 required employee contribution for employee-only coverage under the employer's plan plus the $10,000 of additional compensation that the employee would forgo by enrolling in the plan. Because a high-claims-risk employee must effectively contribute more to participate in the group health plan, the arrangement violates the rule that a group health plan may not on the basis of a health factor require any individual (as a condition of enrollment) to pay a premium or contribution which is greater than the premium or contribution for a similarly situated individual enrolled in the plan.

Second, the Departments' regulations generally permit providing, based on an adverse health factor, enhancements to eligibility for coverage under the plan itself but not cash as an alternative to the plan. In particular, the regulations permit providing plan eligibility criteria that offer extended coverage within the plan and subsidization of the cost of coverage within the plan based on an adverse health factor. (9) An example in the Departments' regulations illustrates that a plan may have an eligibility provision that provides coverage to disabled dependent children beyond the age at which non-disabled dependent children become ineligible for coverage. (10) Another example in the regulations illustrates that a plan may provide coverage free of charge to disabled employees, while other employees pay a participant contribution towards coverage. (11) However, in the Departments' view, providing cash as an alternative to health coverage for individuals with adverse health factors is an eligibility rule that discourages participation in the group health plan. This type of arrangement differentiates based on a health factor and is outside the scope of the Departments' regulations on benign discrimination, which permit only discrimination that helps individuals with adverse health factors to participate in the health coverage being offered to other plan participants. The Departments intend to initiate rulemaking in the near future to clarify the scope of the benign discrimination provisions.

Finally, because the choice between taxable cash and a tax-favored qualified benefit (the election of coverage under the group health plan) is required to be a Code section 125 cafeteria plan, imposing an effective additional cost to elect coverage under the group health plan could, depending on the facts and circumstances, also result in discrimination in favor of highly compensated individuals in violation of the Code section 125 cafeteria plan nondiscrimination rules.

Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?

No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic for several reasons. First, the arrangements described in this Q3 are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage. The mere fact that the employer does not get involved with an employee's individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan. DOL guidance indicates that the existence of a group health plan is based on many facts and circumstances, including the employer's involvement in the overall scheme and the absence of an unfettered right by the employee to receive the employer contributions in cash. (12)

Second, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54, and the two IRS FAQs addressing employer health care arrangements referenced earlier, such arrangements are subject to the market reform provisions of the Affordable Care Act, including the PHS Act section 2711 prohibition on annual limits and the PHS Act 2713 requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code.

Footnotes

1. See DOL Technical Release 2013-03, available at http://www.dol.gov/ebsa/newsroom/tr13-03.html, and IRS Notice 2013-54, available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
2. See Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements, September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
3. Available at: www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements.
4. These arrangements may be sponsored by an employer, an employee organization, or both. For simplicity, this section of the FAQs refers to employers. However, this guidance is equally applicable to HRAs sponsored by employee organizations, or jointly by employers and employee organizations.
5. Section 1001 of the Affordable Care Act added new PHS Act §§ 2711-2719. Section 1563 of the Affordable Care Act (as amended by Affordable Care Act § 10107(b)) added Code § 9815(a) and ERISA § 715(a) to incorporate the provisions of part A of title XXVII of the PHS Act into the Code and ERISA, and to make them applicable to group health plans and health insurance issuers providing health insurance coverage in connection with group health plans. The PHS Act sections incorporated by these references are sections 2701 through 2728. Accordingly, these referenced PHS Act sections (i.e., the market reforms) are subject to shared interpretive jurisdiction by the Departments.
6. See DOL Technical Release 2013-03, available at http://www.dol.gov/ebsa/newsroom/tr13-03.html, and IRS Notice 2013-54, available at http://www.irs.gov/pub/irs-drop/n-13-54.pdf. See also Insurance Standards Bulletin, Application of Affordable Care Act Provisions to Certain Healthcare Arrangements, September 16, 2013, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/cms-hra-notice-9-16-2013.pdf.
7. Prior to the enactment of the Affordable Care Act, Titles I and IV of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191, added section 9802 of the Code, section 702 of ERISA, and section 2702 of the PHS Act (HIPAA nondiscrimination and wellness provisions). Affordable Care Act section 1201 also moved those provisions in the PHS Act from section 2702 to section 2705.
8. 26 CFR 54.9802-1 (g); 29 CFR 2590.702(g);146.121(g).
9. 26 CFR 54.9802-1 (g)(1)(i); 29 CFR 2590.702(g)(1)(i);146.121(g)(1)(i).
10. 26 CFR 54.9802-1 (g)(1)(ii), Example 1; 29 CFR 2590.702(g)(1)(ii), Example 1;146.121(g)(1)(ii), Example 1.
11. 26 CFR 54.9802-1 (g)(2)(ii), Example; 29 CFR 2590.702(g)(2)(ii), Example;146.121(g)(2)(ii), Example.
12. See 29 CFR 2510.3-1(j). 

  

Sugar Could Be Worse for Your Blood Pressure Than Salt, New Research Reveals

From Sophie Borland for the Daily Mail: 

• For years the public have been urged to slash their salt intake  

• It had been thought salt increases the risk of strokes by a quarter and it has been blamed on 3 million deaths worldwide annually  

• But study claims sugar is more related to blood pressure than sodium

Sugar - not salt -  is to blame for high blood pressure, US researchers claim. They argue that high sugar levels affect a key area of the brain which causes the heart rate to quicken and blood pressure to rise.   

The scientists from New York and Kansas also highlight a recent study of 8,670 French adults which found no link between salt and high blood pressure.  

They argue that high sugar levels affect a key area of the brain which causes the heart rate to quicken and blood pressure to rise 

For years the public have been urged to slash their salt intake and guidelines state it should be restricted to a teaspoon a day.  

Experts say it increases the risk of strokes by a quarter and it has been blamed on 3 million deaths worldwide annually.   

But in an article in the American Journal of Cardiology, researchers led by Dr James DiNicolantonio state ‘It is sugar not the salt that may be the actual causative factor for high blood pressure. 

‘This notion is supported by meta analyses of randomized control trials (large-scale studies) suggesting that sugar is more strongly related to blood pressure in humans than sodium. ...

9 Horrible Things You Should Stop Doing Now to Maximize Productivity and Efficiency

This is from Tim Ferriss, writing for Inc.com and Time: 

1) Do Not Answer Calls from Unrecognized Numbers 

[T]he interruption will throw your concentration, costing you far more in time and brain power than just the conversation itself, and second, if it’s important, you’ll find yourself in a poor negotiating position, scrambling to formulate your thoughts when the caller is already well prepared.... 

2) Do Not Email First Thing in the Morning or Last Thing at Night 

“The former scrambles your priorities and all your plans for the day and the latter just gives you insomnia,” says Ferriss, who insists “email can wait until 10am” or after you check off at least one substantive to-do list item. 

3) Do Not Agree to Meetings or Calls With No Clear Agenda or End Time 

“If the desired outcome is defined clearly… and there’s an agenda listing topics–questions to cover–no meeting or call should last more than 30 minutes,” claims Ferriss, so “request them in advance so you can ‘best prepare and make good use of our time together.'” 

4) Do Not Let People Ramble 

Sounds harsh, but it’s necessary, Ferriss believes. “Small talk takes up big time,” he says, so when people start to tell you about their weekends, cut them off politely with something like “I’m in the middle of something, but what’s up?” ...

5) Do Not Check Email Constantly 

Batch it and check it only periodically at set times (Ferriss goes for twice a day). Your inbox is analogous to a cocaine pellet dispenser, says Ferriss. Don’t be an addict. ...

6) Do Not Over-Communicate With Low Profit, High Maintenance Customers 

“Do an 80-20 analysis of your customer base in two ways,” Ferriss advises. “Which 20% are producing 80% or more of my profit, and which 20% are consuming 80% or more of my time? Then put the loudest and least productive on auto-pilot, citing a change of company policy.” 

What should those “new policies” look like? Ferriss suggests emailing problem clients with things like guidance on the number of permissible calls and expected response times. ...

7) Do Not Work More to Fix Being Too Busy 

The cure for being overwhelmed isn’t working more, it’s sitting down and prioritizing your tasks, Ferriss believes. So don’t make the mistake of working frantically if you’re swamped. Instead, sit down and decide what actually needs doing urgently. If that means apologizing for a slightly late return call or paying a small late fee, so be it....

8) Do Not Carry a Digital Leash 24/7 

At least one day a week leave you smartphone somewhere where you can’t get easy access to it. If you’re gasping, you’re probably the type of person that most needs to do kick this particular habit. 

9) Do Not Expect Work to Fill a Void That Non-Work Relationships and Activities Should 

“Work is not all of life,” says Ferriss. This seems obvious, but the sad truth is that while nearly everyone would agree to this in principle, it’s easy to let things slide to a point where your actions and your stated values don’t match up. Defend the time you have scheduled for loved ones and cool activities with the same ferocity you apply to getting to an important meeting for your business.

   

Update: Group Healthcare Plans Not Providing Coverage for Hospital Care Won't Pass Obamacare's “Minimum Value” Test

From Jerry Geisel at Business Insurance:

Group health care plans that do not provide coverage for hospital care will not pass the health care reform law’s “minimum value” test, but the Internal Revenue Service is giving a one-year pass to existing or soon to be implemented plans excluding the coverage. 

Ending months of uncertainty on the issue, the IRS on Tuesday said such plans do not provide the minimum value requirement and that regulators will shortly propose regulations to this effect. 

The IRS announcement involves a section of the Patient Protection and Affordable Care Act that imposes, starting in 2015, stiff penalties on employers offering plans that do not pass an ACA minimum value test. 

To pass that test, plans must pay for 60% of covered services. If a plan does not pass the minimum value test, lower-income employees — those earning up to 400% of the federal poverty level — can go to public insurance exchanges to obtain coverage, with the federal government subsidizing their premiums. In that situation, employers are liable for a $3,000 penalty for each employee who obtains the subsidized coverage. 

Likely due to a flaw in a government online calculator, low-cost plans that excluded coverage for hospital services were able to pass the minimum test, benefit experts said. 

That, in turn, fueled interest in the plans, which cost about half the price of more traditional plans, especially from employers who have not offered coverage and starting in 2015, faced an ACA mandate to offer coverage or be hit with a stiff financial penalty. 

But in its Tuesday announcement, the IRS said plans excluding hospital coverage fail the minimum value requirement. 

The IRS, in its notice, suggested that its calculator gave faulty results. The IRS, Treasury and the Department of Health and Human Services are considering whether the calculator produced “valid actuarial results.” ...

IRS Notice 2014-69 goes on to provide that an employer who "has entered into a binding written commitment to adopt, or has begun enrolling employees in, a Non-Hospital/Non-Physician Services Plan prior to November 4, 2014 based on the employer’s reliance on the results of use of the MV Calculator" shall be not be harmed by this anticipated regulatory change provided the "plan year begins no later than March 1, 2015." (Top of page 2 in IRS Notice 2014-69.)

* Note: Jerry Geisel's original version of this article stated that the agreement to provide non-hospital benefits could have been a "nonbinding" commitment." However, alert reader Mary Jonelle Thompson pointed out that she could not find that provision in the IRS release.  Upon further review, I've updated this post as I believe the original Business Insurance column had a typo in it.  

 And from Jay Hancock writing at St. Louis Today:

Moving to close what many see as a major loophole in Affordable Care Act rules, the Obama administration will ban large-employer medical plans from qualifying under the law if they don’t offer hospitalization coverage.  

The administration intends to disallow plans that “fail to provide substantial coverage for in-patient hospitalization services or for physician services,” the Treasury Department said in a notice Tuesday morning. It will issue final regulations banning such insurance next year, it said. 

Hundreds of lower-wage employers such as retailers and temporary-staffing companies have been preparing to offer such plans for 2015, the first year large companies are liable for fines if they don’t provide minimum coverage. Some have enrolled workers for insurance beginning Oct. 1.

For employers that have committed as of Nov.4 to such coverage, the administration will temporarily allow it under the health law, the notice said. ...

Allison Bell over at LifeHealthPro points out an interesting nuance for folks who've already installed a skinny plan:

You or your clients might run up against a "duty to inform" requirement. 

The agencies want an employer that offers a non-hospital plan -- including a non-hospital plan set up before Nov. 4, 2014 -- to correct any earlier disclosures that stated or implied that the plan might keep the enrolled employee from qualifying for a PPACA premium subsidy tax credit. 

If an employer with a non-hospital plan fails to tell an employee that the employee is still eligible for a tax credit, the agencies will consider the plan as implying that the employee was ineligible for the tax credit, officials say. 

Officials did not say what penalties employers might face if the agencies find that employers use poorly explained non-hospital plans to discourage employees who might qualify for the premium subsidy tax credit from applying for the tax credit. 

Here is the official notice from the IRS: Group Health Plans that Fail to Cover In-Patient Hospitalization Services.

We predicted this change and discussed it last week on the Armstrong and Getty Show.  Audio here:

  

Simple Rules for Voting with Audio from Armstrong and Getty

I'm veering a smidgen off topic for some election day fun this afternoon.  When I was a kid I could recall going on hunting and fishing trips with my Dad and uncle.  I knew something was not right about me because I often enjoyed the political discourse as much as the outdoor adventure.  And while that may pass as acceptable in adulthood, it certainly was not normal for a 9 year old.  I decided to distill some of Uncle Don and Dad's lessons into four simple rules with the help of Armstrong and Getty - Rule 3 is bedrock A & G doctrine.

Jack and Joe had some fun today pontificating the prudence of these principles early in the 7 AM hour of Today's Armstrong and Getty Show.  Here is that audio:

For a trio of outstanding columns from Megan McArdle, the Coyote Blog, and Mike "Mish" Shedlock dealing with the same concepts check out the following:

• Many Propositions that seem outwardly liberty-enhancing are actually Trojan Horses that do the opposite. (Coyote Blog.) 

• Forget the claim, "it's for the children". Politicians do whatever they want with the money once the tax hikes pass.  (Mike "Mish" Shedlock.) 

• Unsure?  Don't vote. Apathy “is a good sign that the country does not need your ill-informed, half-hearted opinion." (Megan McArdle at Bloomberg.) 

 

California's Unfunded Liabilities for Current & Future Pensions Exploded from $6.3 Billion in 2003 to $198.2 Billion in 2013

This morning on the Armstrong and Getty Show, Jack and Joe discussed a topic we touched upon here on Saturday.  California's public pension promises are totally out of control and will bankrupt the state quickly if municipalities are not able to renegotiate those fanciful promises in bankruptcy proceedings.  Joe also expounds on my theory that if we Californians are going to need a federal bailout (and we will) we had better hurry up and get to it because if Illinois beats us to the punch, I doubt the nation will have the stomach for a second state-handout. 

Here is the audio from today's Armstrong and Getty show at the top of the 7 AM hour.  Set forth below you can find nearly all of another excellent column from Dan Walters in the Sacramento Bee on the topic as well as an excerpt from Ed Mendel over at Calpensions.org. 

This is from Dan Walters of the Sacramento Bee:

State Controller John Chiang dropped a political bomb the other day, although he was so quiet about it, one could say it was a stealth bomb. 

Chiang added public pension systems to his already large fiscal database. One chart reveals that their “unfunded liabilities” – the gap between assets and liabilities for current and future pensions – exploded from $6.3 billion in 2003 to $198.2 billion in 2013. 

Moreover, that startling number assumes that pension systems will see asset earnings of about 7.5 percent a year – a number that some are beginning to see as unattainable. 

Los Angeles’ city pension system dropped its assumed earnings, called the “discount rate,” last week. The board of California’s second largest pension system, covering teachers, was told last month by a panel of experts that its 7.5 percent assumption is likely to be under 7 percent for the next decade. 

If a 7.5 percent discount rate, which is also used by the giant California Public Employees’ Retirement System and many local systems, is too high, the current $198.2 billion debt in Chiang’s report is, in reality, much higher. 

The debt rose as pension funds’ earnings plummeted during the recession and new benefits kicked in, despite dramatic increases in mandatory contributions.
State and local governments’ contributions nearly tripled between 2003 and 2013, from $6.43 billion a year to $17.5 billion, while those of employees nearly doubled, from $5.2 billion to $9.1 billion. 

The unfunded liability problem hits cities the hardest because of their high payrolls. Many have seen their retirement tabs quadruple, such as the 2003-13 increase from $98 million a year to $375 million for Los Angeles’ city police and fire pensions. 

Three California cities have declared bankruptcy in recent years, in large measure due to pension debts, and the judge in Stockton’s case declared those debts may be reduced in bankruptcy, although he didn’t compel Stockton to do so.  [More on this below from Ed Mendel.] ... 

Chiang’s new numbers should not be surprising. 

Fifteen years ago, in a spasm of abject irresponsibility, then-Gov. Gray Davis and the Legislature pumped up pension benefits for state employees on blithe, unsupported assurances from a union-friendly CalPERS board that high investment earnings, not taxpayers, would cover the cost. And many local governments blindly followed suit. 

Davis was rewarding unions that helped him get elected in 1998. Now the piper must be paid, and the cost is very steep.  

And regarding just how difficult it is for bankrupt cities to actually cut pension promises, this is from Ed Mendel at Calpensions.com:

... To cut pensions, said the judge, the city would have to reject its contract with CalPERS and “more importantly” its contract with employees. Pensions are part of total pay, and while in bankruptcy Stockton negotiated contracts with unions. 

Klein said employees agreed to pay cuts during the negotiations with the understanding that pensions would not be cut. He said all of the concessions were “made on the direct income side not the pension side.” 

So to cut pensions, the city would have to reject a collective bargaining agreement. A U.S. Supreme Court decision (Bildisco 1984) set a higher standard for rejecting a collective bargaining agreement. 

The judge said Congress responded by setting a higher standard than Bildisco for rejecting a collective bargaining agreement in business bankruptcies (Chapter 11), which so far is not applicable to municipal bankruptcies. 

He said rejecting a “garden variety” contract is a low-level hurdle, rejecting a collective bargaining agreement under Bildisco is a higher hurdle, and rejecting a bargaining agreement in a business bankruptcy is an even higher hurdle. 

“So it would be no simple task to go back and redo the pensions,” said Klein. In the case of Stockton, the package of pay concessions would have to be reopened, which “as a practical matter would be difficult to do.”... 

    

2014 Healthcare Trend 6.5% | 2015 to Be 7.5% | Carriers Profiting Nicely Under Obamacare

Carrier financial reports provide a much more reliable projection of medical trend, true costs and actual loss ratios than any renewal report ever will.  I find it comical how often carriers claim that "trend" is 12.9% in a renewal request while simultaneously reporting to Wall Street that medical costs are humming along at 6.5%.

The trio of below stories clearly illuminate that:

• Medical trend in 2014 is about 6.5%.  
• Medical trend in 2015 is probably going to be about 7.5%. 
• The slowdown in cost increases is due to a weak economy and increased deductibles, copays and out-of-pocket costs under Obamacare. 
• The carrier community is doing just fine under Obamacare. And, 
• This is true despite the fact that the new exchange enrollees are sicker than anticipated.  

Blue Cross - from Caroline Humer, writing at Reuters:

... WellPoint, which operates Blue Cross Blue Shield plans in 14 states, said it had spent 82.5 percent of premiums on medical claims, down from 84.9 percent a year earlier. 

The company also said it still expected medical costs to rise about 6.5 percent this year. For next year, it is assuming the rate will increase, like Aetna. 

"We're comfortable with our 6.5 percent for this year, plus or minus 50 basis points in the bias to the low end, but we're pricing for a level higher than that as we go into next year for core medical trend," Chief Financial Officer Wayne Deveydt said during a conference call with analysts. 

WellPoint raised its earnings-per-share outlook for 2014 to $8.75 to $8.85, above analysts' expectations of $8.72 and looking to 2015, said analysts expectations of earnings of $9.15 to $9.30 per share were "reasonable placeholders." ...

United Healthcare - from Yahoo Finance:

... UnitedHealth Group Inc said on Thursday that its third-quarter net profit increased as patients' use of medical services remained "restrained," helping to keep the cost of health insurance claims down. 

Americans have been using healthcare services lightly in recent years due to the economic downturn and as their out-of-pocket costs for doctor and hospital visits have increased. ...  

UnitedHealth, the largest U.S. managed care company, reported earnings of $1.6 billion, or $1.63 per share, up from $1.57 billion, or $1.53 per share, a year earlier. 

Analysts on average had expected a profit of $1.53 per share, according to Thomson Reuters I/B/E/S. 

UnitedHealth said the percentage of medical claims that it spent on care fell by 90 basis points to 79.7 percent in the third quarter. At its commercial business, which includes health plans in which UnitedHealth manages the risk, its medical care ratio decreased 220 basis points to 79.1 percent. ...

And Aetna - also from Caroline Humer at Reuters: 

[Aetna's] 2014 medical spending trend forecast is now for an increase at the high end of the 6 to 7 percent range. For 2015, it said it is pricing premiums based on an expectation that spending will accelerate by another 50 to 100 basis points.

Investors have been watching medical cost trends closely for any reversal of the low use of medical services in recent years.

Some hospitals have reported an uptick in use driven by a rebound in the economy. Others have said medical services use is up because of implementation of the national healthcare reform law. ...

Aetna said the percentage of premiums collected that it spent on covering medical services increased 0.5 percentage points to 81 percent in its commercial business, which includes new individual health plans. For commercial and government businesses combined, the ratio fell to 82.3 percent from 83.1 percent.

In 2014, Aetna began selling health insurance to individuals on the new healthcare exchanges created under the Affordable Care Act.

Aetna said it has almost 600,000 new insurance exchange customers and that they have higher costs per patient than expected. ...

Revenue rose 13 percent to $14.7 billion, slightly above analysts' expectations. ...

Aetna raised its 2014 earnings forecast to $6.60 to $6.70 per share from $6.45 to $6.60. 

Hat tip to Dr. Ryan Kennedy for these stories.